- IP (Intellectual, Human/Experiential, and Financial
a) Intellectual Property (IP): If a company can solve a problem that involves superior intellectual abilities (eg. AlphaZero can win a chess match), then it has significant potential value. IP also refers to legal protection. By holding patents, you have the option to protect a potential intellectual advantage in a market.
b) Human/Experiential Capital: If there’s a winning team capable of solving significant challenges, that increases the potential value of the company.
c) Financial Capital: If a company has significant resources, it can afford to build a significant presence or network capable of generating a significant advantage.
2. Product-Market Fit
My definition of product/market fit is the degree to which you can design a product/service that solves a problem so well that you have the ability to attract the following:
- Significant revenue
- Ability to increase pricing
3. Investing in Vertical Integration to Capture Significant Revenue in a Large Market
By investing in vertical integration and widespread cover, multiple products/services have become almost essential oligopolies to users including the following:
- mobile carriers (eg. TMobile, AT&T, Verizon)
- credit card issuers (eg. Visa, Mastercard, and AMEX)
- Amazon (enabling one hour delivery by having significant vertical integration in some markets)
- Overnight delivery service providers (eg. DHL, Fedex and UPS)
4. Network Effects/Widespread Adoption/Exclusive Content
- Search (eg. Google)
- Connections/Relationships (eg. Facebook and LinkedIn)-
- Unique content (eg. Facebook/Instagram, Netflix, YouTube, and Twitch)
5. Good Strategy/Management/Governance
Structuring with some of the following characteristics may increase the odds of success:
- Creating a board of directors
- Aligning incentives
- Having a defined a process for decision-making and dispute resolution
- Applying a meritocratic system of sharing ideas where the best ideas win
- Reporting data systematically/regularly to key stakeholders to make decisions
